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Business Management Section 3.7 Cashflow

This document provides an overview of cash flow forecasting for business management. It defines key terms like working capital, liquidity, and the working capital cycle. It explains that a cash flow forecast shows expected cash inflows and outflows over a period of time. Sources of cash inflows and outflows are listed. The net cash flow is calculated as the difference between inflows and outflows and should be positive. The closing balance equals the opening balance plus the net cash flow. Cash flow forecasts are useful for companies to plan for future problems and for banks to assess companies' liquidity before providing credit.

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18 views2 pages

Business Management Section 3.7 Cashflow

This document provides an overview of cash flow forecasting for business management. It defines key terms like working capital, liquidity, and the working capital cycle. It explains that a cash flow forecast shows expected cash inflows and outflows over a period of time. Sources of cash inflows and outflows are listed. The net cash flow is calculated as the difference between inflows and outflows and should be positive. The closing balance equals the opening balance plus the net cash flow. Cash flow forecasts are useful for companies to plan for future problems and for banks to assess companies' liquidity before providing credit.

Uploaded by

pa
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Business Management

Section 3.7
Cashflow

In the exam you may have to


1. Draw up a cashflow forecast form information you are given.
2. Fill in missing numbers in a cashflow forecast.
3. Analyse a cashflow forecast and suggest solutions to any problems.

Cash is a current asset.


Not the same as profit

Working capital: Cash or liquid assets a company has to pay for the daily running costs of a
business.
Company can close if not enough working capital.

Liquidity: How easily an asset can be turned into cash e.g cash most liquid asset, land is illiquid
(means not liquid) as it takes time to sell.

Working Capital Cycle

Important to keep time between sales and cash as short as possible. No cash, cannot produce more
goods.

Cashflow Forecast.

Shows expected cash inflows and outflows for a business over a given time period.

See example on page 295 and 296 of textbook.

Cash Inflows

Cash flowing into a business.


Possible sources are:
Cash Outflows

Cash flowing out of a business.


Possible sources are:

Net Cash flow


Difference between cash inflows and outflows. Should be positive.

Opening Balance
Amount of cash at start of time period.

Closing Balance
Amount of cash at end of time period. Use this figure for opening balance in next time period.

Closing balance=Opening Balance + Net Cash Flow

Use brackets to show negative figure

Closing balance, opening balance and net cash flow can be positive or negative.

Uses of cash flow forecast

1. Companies and managers can try to predict future problems and plan solutions in advance
e.g arrange an overdraft.
2. Banks can request a cashflow forecast from a company to assess its liquidity position before
providing any credit e.g loans or overdrafts.

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